World Intellectual Property talk by LRR Law Partner Emily Bayton
Transcript of LES World IP Day - Top Licensing Mistakes - Emily Bayton, Lewis Roca Rothgerber LLP
1. Common Licensing Mistakes Emily Bayton World IP Day LES
Arizona Chapter Monday, April 28, 2014
2. Failing to Consider the Intangible Assets Being Licensed
Type of IP Considerations Patents, patent applications and know-how
Licensee may need rights to other patents to practice the
invention; rights are territorial; joint inventor considerations no
duty to account; what about any improvements made and/or patented
during the term of the license? Trademarks Rights are territorial;
quality control considerations Copyrights/Software Work for hire
trap (employee-created v. contractor-created); joint authors duty
to account by joint authors; what rights are being licensed copy,
distribute, perform, display, create derivative works or all of the
above) Rights of Publicity State law governs; what rights are being
licensed name, image, likeness, voice; post mortem rights Trade
Secrets State law governs; duty to implement reasonable measures to
protect secrecy of trade secret; confidentiality provisions
3. Failing to Define the Grant Parties Whos allowed to exercise
rights? Subject matter What IP is being licensed? Rights What is
licensee allowed to do with IP? Territory Where can rights be
exercised? Exclusivity Are rights, exclusive, sole, non- exclusive
or a hybrid? Term How long can rights be exercised? Restrictions
Are rights assignment/sublicensable? Restrictions on licensor?
4. Failing to Define the Grant (cont.) Problems with the
license grant can include: Failure to spell out terms of grant
Improper grant language Over-granting/under-granting
5. Failing to Define the Grant Exclusivity can be broken down
by different categories: Territory (state, regional or country
basis) Product type Distribution channels (e.g., exclusivity for
wholesale sales or distributions via the Internet; certain stores
or customers) Type of Grant Description Exclusive Exclusive license
grants the rights to the licensee to the exclusion of all others,
including the licensor; an exclusive licensee has the contractual
right to exclude all others from its particular area of exclusivity
Sole Sole license grants rights only to licensee, but NOT to the
exclusion of the licensor; sole license prevents the licensor from
granting other licenses but do not prevent licensor itself from
using the licensed rights Non-exclusive Non-exclusive license
grants rights to the licensee, but does not preclude licensor from
granting similar licenses to others. Hybrid Exclusive for a period
of X years; non-exclusive thereafter
6. Failing to Define the Grant (cont.) Other Considerations: Is
the grant sublicensable? Open sublicense rights; limited to only
parties in privity with licensee; only affiliates of the licensee;
only a specified number of third parties; only parties preapproved
by the licensor Essential protections for licensor if grant is
sublicensable: Notice of sublicense grant Specify terms that must
be included in sublicense or include form sublicense agreement in
license and language that sublicense must be substantially the same
terms and in the same form as attached form sublicense agreement
Ability to audit sublicensee Notice if licensee becomes aware that
sublicense has breached sublicense agreement Right to enforce
sublicense Is the license assignable? Typical presumption that a
contract may be assigned by either party unless there is an express
prohibition on assignment If prohibiting assignment, does it cover
all situations (asset transfer, reorganization, merger, transfer by
operation of law)? Particularly important for start ups need to
consider business need for having the right and ability to assign
the license.
7. Failing to Define the Grant (cont.) Failure to consider
future expansion of use (different product lines; different social
media outlets) Licensee may wish to seek to address future
expansion of the license through the following: Requires the
licensor to give the licensee the opportunity to match any proposed
terms that the licensor may receive from a third party for
licensing the licensed trademarks for the specified uses. Right of
First Refusal Requires the licensor to negotiate in good faith with
the licensee before offering to license the licensed trademarks to
third parties for the specified use. The licensor then typically
may not offer to third parties more favorable terms than those it
offered to the licensee. Right of First Negotiation
8. Failing to Address Enforcement and Litigation Rights
Enforcement/Litigation Rights IP rights can be diminished or lost
by failure to enforce rights against third-party infringers.
Licensor typically retains enforcement rights in licensed IP, its
not always the case and rights and obligations should be spelled
out in license. Key Questions: If IP is infringed by a third party,
how such infringement will be handled (who will notify; who will
file suit; who is in charge of suit; costs borne by licensor or
licensee or divided)? If there is a recovery for infringement, how
that will be divided between licensor and licensee? Right to settle
by licensor or licensee; by licensor only with consent of licensee;
by licensee only with consent of licensor?
9. Failing to Address Termination Rights and Restrictions
Termination rights: What if the license isnt working? Do you have
an out? Potential Termination triggers: By Licensor (at specified
time; upon breach (right to cure v. no right to cure); failing to
meet minimal sales; at any time; licensee challenges the IP or
licensors ownership of the IP; other) By Licensee (at any time upon
X days of written notice; at a specified time; only upon payment of
penalty of X dollars; upon breach (right to cure v. no right to
cure) General events triggering termination (upon expiration of IP;
upon a finding of invalidity of IP (by court, by PTO); upon
bankruptcy of either party)
10. Failing to Address Post-Termination Rights and Restrictions
Parties should address: Process for licensee to stop or phase out
use of licensed rights; removal of trademarks and other licensed IP
Allocation of IP rights (revert back to licensor; does licensee
retain any rights?) Phase out of use Return of confidential
information Treatment of inventory or materials bearing IP (return
to licensor; destruction within X days) Cancellation of any
licenses recorded in foreign jurisdictions Survival: Important that
some rights and obligations continue beyond termination of license
(e.g., payment of remaining royalties, indemnification and
limitations of liability, confidentiality obligation, restrictive
or non-competition covenants) Consider downstream effect of
termination Do sublicenses terminate?
11. Failing to Consider Ways to Structure the Deal As Licensor,
what do you want out the license? (revenue, access to data, build
brand by entering new market or territory where otherwise dont have
resources, exposure) As Licensee, what do you need from the
licensee? (access to certain technology, brand recognition) Ways to
structure the deal: Royalty free Royalty (percentage of profits; of
gross sales; of net sales; specific amount; per unit price; others)
Single lump sum payment Milestone payments (what they are and
amount owed) Other considerations for the deal structure: Minimum
payments for licensee Tax obligations Report and audit rights
12. Failing to Impose Duty of Diligence on Licensee Diligence
is concept that the exclusive licensee will do all it can to
operate under the license so that the licensor reaps the monetary
benefit of the licensee. If this is NOT addressed, the licensee can
sit on technology and preclude others from commercializing the IP.
Diligence is usually covered by license in the ABSENCE of minimum
royalty requirement. Best efforts to Reasonable best efforts to
Agreement to produce or sell certain number of units Agreement to
invest a specified amount Not to refuse reasonable requests for
sublicense What are penalties for lack of diligence License
converted to nonexclusive Termination
13. Failing to Include Proper Representatives and Warranties
Common mistakes: Failing to include proper reps and warranties.
Relying on boiler plate provisions without consideration for deal
and IP being licensed. Taking an unreasonable position on reps and
warranties and allocation of risk.
14. Failing to Include Proper Representatives and Warranties
Licensor owns the IP being licensed (or has obtained all rights
necessary) to grant the licenses granted in the license. Ownership
The IP being licensed is valid and enforceable. Validity The IP
does not infringement on any third-party rights, and licensees use
as provided for under the agreement will not infringe on the rights
of any third party. Non-infringement
15. Failing to Include Proper Representatives and Warranties
Licensor guarantees factual accuracy of any information it provides
regarding the IP (can be important in copyright context). Factual
Accuracy Parties have the authority and ability to enter into the
license and perform the obligations under the license.
Authority
16. Failing to Address License Recordation Obligations Certain
jurisdictions have mandatory recording requirements for IP
licenses. In other jurisdictions, recording is optional, but
provides licensor with additional benefits: Ability to transfer
royalties out of that country. Enforce the license against third
parties. Claim costs in proceedings for infringement that occurred
before the license was registered. Build recordation obligation in
license discussing: Who bears burden to record? Licensees
obligations (i.e., assist in providing licensor with information
necessary to record license).